On 20 June, Javier Santamaria will take on the role of chairman of the European Payments (EPC) Council from Gerard Hartsink. Here, he speaks to Duygu Tavan about the tangible future of SEPA
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Santamaria has been chairman of the EPC SEPA Payment Schemes Working Group since 2009 and is also a member of the Board of the Euro Banking Association, a director the SWIFT Board and of the Iberpay Board. Soon, he will be chairman and with the SEPA migration deadline less than two years away, he has an eventful few months ahead.
Once this migration has been accomplished, national payment schemes will have merged into one large cross-border system that will eventually streamline costs and efficiencies. One effect of the SEPA migration is therefore the SEPA Direct Debit (SDD) scheme.
SDDs effectively turn cross-border payments into domestic ones. Although the accounts of the payer and biller do not necessarily have to be held in euros, the money transfer between the banks will only be executed in euros. SDD mandates can be both issued on paper or electronically, and is legitimate for 36 months after the last initiated collection. Billers are required to store these signed mandates for as long as the mandate is still valid, and for no less than 14 months.
These transactions must be identified via IBAN (International Bank Account Number) and BIC (Business Identifier Code) and are the only account and bank identifiers for SEPA transactions.
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By GlobalDataThe SDD Schemes offer businesses significant efficiency gains through the automation of payment processing and the ability of businesses to optimise the cash management process, Santamaria explains.
The latter can be achieved by businesses consolidating accounts currently maintained in different European countries to handle local payments into one single account and subsequently centralising liquidity. The SDD Schemes facilitate the expansion of businesses across national borders by introducing a standardised payment infrastructure. The SDD Schemes therefore support and facilitate trade across the European Union internal market. Innovative end-to-end SEPA solutions, based on global standards developed by the International Organization for Standardization (ISO), will also lead to decreased IT costs, streamlined back office functions and simplified reconciliation, he says.
Santamnaria draws a link to the current volatile economic climate in Europe and highlights that the economy as a whole would benefit if invoices were paid on time.
The business community depends on reliable cash flow and the SDD Schemes enable the biller to collect payments on the exact due date. The SDD B2B Scheme, in particular, fully supports the intra-European supply chain management of companies on the financial side, he says.
Challenges
In the latest EPC Newsletter, SEPA project managers shared their migration experience in the EPC Newsletter identified the following main challenges:
- Conversion of customer account data to the International Bank Account Number (IBAN) and the Business Identifier Code (BIC);
- Implementation of the ISO 20022 message standards;
- Arrangements to adapt to the usage of ISO 20022 XML message standards in the customer-to-bank space in relation to files of payment transactions.
The EPC does acknowledge that there are multiple interpretations of the ISO 20022 message standards, but Santamaria highlights that different ma markets have different data needs.
Thus, they may need to define their own version within the global standard, specific to its own situation. In this respect, the ISO messages have been adjusted to meet the SEPA requirements. The role of the EPC in defining these implementation guidelines, i.e. the SEPA data formats, therefore consists in identifying all necessary data elements for making SEPA payments as defined in the SCT and SDD Rulebooks within the global ISO 20022 standard.
Santamaria says that the implementation of the SEPA Schemes and technical standards does have its challenges, however, he says, these are comparable to the challenges inherent to the implementation of other major change programmes.
Santamaria says that implementation is perfectly feasible, however the scope of the changes is extensive and the migration process time-consuming.
One area that may cause some struggle is R-transactions. These are payment exceptions and include refunds, returns, rejects, reversals, revocations and requests for cancellation.
One of the main benefits of the SDD Schemes is that the scheme rules streamline exception handling, both at the process level and the dataset level. This allows straight-through-processing and automated exception handling end-to-end, says Santamaria.
Future
The introduction of SDDs, Santamria says, will also spur growth in e-commerce.
SDD benefits consumers who wish to purchase goods or services from retailers located in SEPA countries other than their home country. All consumers will be able to rely on one home account for all domestic and cross-border direct debit payments throughout SEPA. It is convenient for consumers not to have to deal with the consequences of late payments. The SDD also enables the consumer to know exactly when his or her account will be debited.
The real deal for businesses is the competitive and custom-tailored SEPA service offered by individual banks. Companies are therefore encouraged to shop for the SEPA bank products that best fit their needs. It is expected that the roll-out of SEPA will increase competition among PSPs to the benefit of bank customers.
With less than 24 months to go, it is clear that payment habits and business models on both the demand and supply sides will only change gradually once SEPA is a reality, says Santamaria.
It is difficult to compete in a domestic euro payments market made up of 32 countries, which today exists only in theory. The removal of national barriers in the payments market will bring value, but not as much as expected and as quickly as desired, Santamaria highlights.
Payments continue to rely on proximity effects: merchants prefer to bank with a nearby institution they can contact easily; consumers still open accounts based on closeness to their home or work and where staff speak their language. Even large corporations make similar considerations when searching for solutions that best meet their needs. Consequently, they will regularly choose large banks with an overlapping footprint in the markets where both are present. Cross-border competition in SEPA will take time to materialise, even once migration to the single set of SEPA payment schemes is completed.
